Author: simmons96 96


ACCT 511RESEARCH PROJECT 1 PROMPTYou have a client named Takem’s Appliances and Electronics, LLC, owned and operatedby Tommy Takem. Takem’s is located in a rural area of Southwest Virginia, and the majority ofits customers are poorer residents of the Appalachian regions of Virginia, Tennessee, Kentucky,and West Virginia. Since his business is located in a rural area where there is little competition,Tommy tends to charge about 10–20% more than most other retail outlets.Tommy recently came up with an idea for expanding his business. He decided to beginselling his appliances and electronics door-to-door in the above described regions. Until recently,it had been working great. He hired some great salespeople who really know how to “apply thepressure and turn up the heat.” Further, since he is providing a service to these folks by bringingthe goods to their homes, he charges about 30% more than he would if the customers came to thestore. Obviously, the salespeople do not mention this fact to the customers.Further, since many of the customers are poor, relatively uneducated and unsophisticated,and have poor credit, the vast majority of the sales are financed by Takem’s. The salespeople getthe customers to sign a bill of sale, a security agreement, and a negotiable promissory note.When these documents are processed back at the office, the clerk then files a financing statementcovering the goods sold to the customer in the appropriate state office. For this, Takem’s chargesa 15% application fee and the maximum rate of interest allowed by law. The default rate is high,but through a combination of collections, repossessions, fees and charges, higher prices, andmarkups, etc., Takem’s is doing very well.Recently, Tommy received a letter from a disgruntled customer named Sally Walker (anelderly widow lady who lives alone in the hills of Southwest Virginia—her children andgrandchildren have all moved out of the area.) She has fallen behind on her payments on her newlaptop computer, and Tommy had started collection efforts. He had not yet referred it to a lawyer.The letter is very well written (which would be unexpected since Sally is not very welleducated.) It indicates that her granddaughter, who recently graduated with an MS in Accountingfrom Liberty University Online helped her with it. It argues that the entire deal is unconscionableand therefore unenforceable. Further, it asserts that Sally has paid enough for the computer andwill not be paying any more. Finally, it threatens to sue for punitive damages and write letters tothe editors of various local papers throughout the region if Takem’s pushes the matter further.Tommy is very upset. He wants to know whether the argument in the letter has any merit.Should he take the threats in the letter seriously or should he just proceed with collections? Inother words, is his business model legal? Further, he wants to know what he could do to protecthimself in the future. Would setting up a financing company that he also owns and selling thenotes to the financing company such that the financing company becomes a holder in due coursehelp? Finally, he wants to know what you think about his business model—regardless of whetheryou conclude that it is legal, is it moral/ethical?

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